After a steep decline that began at the very end of 2016, General Electric (NYSE:GE) shares began to stage a rally last fall. It seemed as though the company’s turnaround under new CEO Larry Culp, whose tenure began in 2018, was gaining steam. However, that turnaround seems to have stalled, at least from the perspective of GE shareholders. After closing at $14.17 on March 8, GE stock slipped. It didn’t hit the $14 ceiling for over two months until May 27, when it reached its highest close in three years.
Has GE’s three-month stall truly come to an end, indicating that this is the time to begin investing in the company again, or is this just a temporary boost in price that won’t last?
The answer to that question largely depends on the performance of two of the company’s divisions: Aviation and Renewable Energy. One has been hammered by the pandemic, while the other is gaining steam and has a new zero-emission administration to help it accelerate growth. The $33 range GE stock was selling for just five years ago may not be just around the corner, but these divisions can be a big part of the story in terms of kickstarting long-term GE stock growth.
Let’s start with what is currently GE’s most valuable, but problematic business unit. Aviation is a multi-faceted business with a 90-year history. It is a huge revenue and profit generator for the company. It primarily involves the development, sale, and servicing of aircraft engines. In 2018, as the company was flailing, it was determined to hold onto its aviation business, seeing it as a key to the future.
The coronavirus derailed that story, decimating commercial air travel. With their fleets grounded, airlines had little interest in buying new jets equipped with GE engines. Total orders for GE commercial aircraft engines dropped from 2,390 in 2019 to just 678 in 2020. Airlines also had far less need for engine maintenance. 2020 saw GE’s Aviation revenue drop 32% year-over-year, while profit for the division slid by 82%.
Last October, the company announced plans to eliminate 13,000 jobs in the aviation unit in an effort to cut costs. In a March cost-cutting measure, GE sold its jet leasing business in a $30 billion deal.
With aviation playing such an oversized role, a big part of the GE stock story is hinging on how soon passengers start flying again. GE is expecting to see aviation revenue flat, or possibly slightly up year-over year in 2021. However, even that projection is “dependent on the commercial aviation market recovery accelerating in the second half of 2021.”
While its aviation business has investors on pins and needles, GE’s renewable energy division is developing into a star performer. Momentum was already building, but the election of Joe Biden as president has been a big boost. Biden’s net zero emission plan that also favors American solutions has generated a whole lot of additional interest in General Electric’s renewable energy solutions.
GE’s massive Haliade-X wind turbines have been chosen for the high-profile, 800MW Cape Cod wind project (Vineyard Wind 1). In 2020, with wind power growing in popularity, GE accounted for over half of U.S. wind turbine orders. In its 2020 shareholder’s report, GE reported its Renewable Energy divisions order backlog had reached a record $30 billion (up 9% YoY), while margins were also improving. Revenue for the division last year was $15.7 billion, a 4% organic YoY increase.
Investment is ratcheting up on renewable energy projects. That is a good sign for GE’s Renewable Energy division, and it’s going to be a big part of the long-term growth story for GE stock.
Bottom Line on GE Stock
If you’re willing to accept some risk, an investment in this Portfolio Grader “B” rated stock has a good chance of providing healthy long-term returns. As its turnaround plan progresses, GE stock will be positioned for growth — especially if wind turbine sales keep coming in, and if air travel returns to something resembling pre-pandemic levels. Heck, Investorplace contributor Will Ashworth thinks that General Electric might even start upping its dividend again.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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